Prices come down because of interest rates which potentially make the mortgage even more expensive than before
Prices coming down means prices on your current house also go down, so less money available if you wanted to move or "upgrade"
Prices coming down will correspond with job losses so you might not even be able to buy a place because you are looking for a job
Unrealistic expectations that a recession will just lower prices while ignoring the structural problems in the housing market such as the effect of higher interest rates on new home construction or the lack of homes for sale as owners locked up lower interest rates in the past
I'm often very unfavorable at government market intervention but this may be a time where the government can step in and build "starter homes" at cost. I guess we could see some startups emerge here but for new entrants it appears that regulation and law are the barriers. Different from established home builders where you build a house that costs X and you sell for Y, but if you make the house larger with "nicer" finishes you can build it for x+10% and sell for y+40% and that's the "barrier" moreso than navigating regulatory frameworks.
I'd suspect that many Nimby issues would go away if people didn't view their house as their retirement. To your point, interest rates are not the only mechanism for this - and direct government construction might be more efficient.
- house in 2021: 500k €, monthly mortgage 1500€
- same house in 2022: 450k €, monthly mortgage 2000€
It’s not seeing the forest for the trees.
Inflation is high. That €2000 payment will only be equivalent to €1900 next year. And long term, house prices grow at least with inflation so if you can afford it, now is a better time.
So I'm playing my Uno reverse card and proposing that you aren't seeing the forest for the trees.
The BoE spent billions to support pension funds that made risky and ridiculous bets on bond markets, so there's no reason to not be as leveraged as you can in those areas.
I don't make 6 figures but I would imagine just earning that money boosts the confidence that "I can create value despite the economy". Your world view just changes the moment you make more than you will ever need. Your concerns would also be different. Right now I must be worried about my savings, rent, and TV news. At >$1M, I'd be worried about other "stuff".
I've always thought that it's not like everyone who makes >$80K is ever going to use all that money. Much of it would be spent on kids' colleges (if any), and the rest of it allows you to retire >10 years before others. Idk what people do with the money.
Before anyone mentions the rich losing money on the stock market: That only matters if you _have_ to sell during the recession. If you're rich you don't have to sell anything, so while you may be having to liquidate your life savings and sell your home for a fraction of what you saved, and a fraction of what you paid, none of that impacts the people with money.
Re: 80k, that is _super_ region specific. On 80k in the SF Bay Area, or NYC, or Paris, etc an income like that is never going to give you home ownership - you wouldn't be able to save enough to make a down payment, and even if you had the funds, a bank wouldn't give you a loan large enough to buy anything. Take SF Bay Area salaries: people may be talking (bragging?) about 1-200k salaries, but you cannot look at that in isolation, average rent in SF is $3.76/sqft vs say $1.60/sqft in Atlanta. So a super dumb multiplier comparison would say $80k salary in Atlanta would be maybe $188k in SF, despite 188k appearing absurdly high.
> Historically recessions are very profitable for the rich, as they are able to buy assets (property, stock, etc) at vastly deflated prices because they had cash or equivalent before the recession began. Lower income people just lose their jobs, and as a product often have to sell their homes at deflated prices to the rich
Or if the person managing your retirement savings chooses to sell.
I live in a west coast metro and make the proverbial six figures. We save about 10% of our income, and we don't live on beans and rice, and I don't have debt servicing. That's it; it's literally just that expensive to live where I do.
Also there's being able to retire >10 before others, or also being able to retire when others do but with more in the tank.
Above that any additional money allows people to again, pay things off sooner or increase their lifestyle. More holidays, latest gadgets, multiple cars, holidays etc.
From a quantitative (not qualitative), relative basis and absolute basis, this is worse for the wealthy then for the poor
You don't seem to understand how this game is played. You keep 10% of your portfolio as liquid money or near liquid assets. This means a rise in asset values increases your dry powder. But since dry powder doesn't go down in value as fast as other assets, you get to buy all the distressed assets on during the fire sale. That is the essence of speculation.
If a 4% mortgage crashes housing prices, your money goes that much further, but you only benefit from the crash if you have enough money to buy the home outright. If you must borrow part of the money, then you must pay interest which means you aren't getting a discount on the house, you're paying the same monthly payment but some of it is going to the bank.
A crash in asset price only matters if you're required to convert those assets to cash while the asset price is deflated. If you have significant assets and cash you aren't required to liquidate those assets, so a relatively short term drop in value isn't actually that important. What is more important is having liquid assets, or the ability to get loans, that allow you to buy new assets while their value is deflated.
You only actually lose if those assets actually fail, and if you have significant assets at the beginning of a recession you also likely have a reasonable spread of assets so are unlikely to actually have a significant proportion of your assets actually fail completely.
This is something people really need to understand: those "losses" reported for the extremely wealthy are only on paper - in general they have not suffered any significant permanent loss.
If we could somehow actually shift the focus to making sure basic needs are met first, like all basic needs, then I don't think the economy would be seen as something to discuss.
Are these things out of whack right now? probably, but that doesn't mean the economy is imaginary.
Not true, either you helped in the production of sufficient food to allow a surplus, and thus enabled specialization of labor, or you didn't.
It is only the addition of billions of "virtual laborers" fuel by underpriced energy in the form of stored ancient sunlight that the labor market became so distorted. The past 200 years have been the anomaly, not the norm. The pulse of underpriced energy is coming to an end.
Unfortunately this is also true about the "assets" that reflect retirement accounts, pension funds, bonds and savings of all kinds. These are basically promissory notes to be paid by the future productivity of the "economy". If the economy doesn't grow, or if contracts, these promissory notes cannot be repaid which either means defaulting or printing money (hyperinflation). Either way, all kinds of people with "savings" and paper assets (which many depend on to survive and/or hope to use to retire some day) will be wiped out.
>If we could somehow actually shift the focus to making sure basic needs are met first, like all basic needs, then I don't think the economy would be seen as something to discuss.
The above is why it isn't as simple as just figuring out what people need today and shifting production around to take care of basic needs, unless you plan on zeroing out all debts, savings and paper assets (which won't be popular with people who have savings and paper assets). If the system is teetering on the edge of total collapse, however, this might be unavoidable (some might even call it "the great reset").
https://www.ft.com/content/60581224-3335-11e8-b5bf-23cb17fd1...
Bad news is, they always underestimated the recession.
For those lucky enough to be within clinging reach of the lower middle class, efforts towards energy and food independence will reap huge rewards. Spain and Portugal could be taken as exemplars of embracing renewables. Even the UK, Australia and the Southern US have embraced solar and wind.
The poorest, thinking of Africa, India, Pakistan, Sri Lanka will continue to, and escalate in suffering as energy pricing and climate chaos continue to steadily worsen.